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Finance Transformation: expert insights on shared services and outsourcing.

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An honest conversation.

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1. There is no turning back from shared services and outsourcing.

It is an idea whose time has come Peter Moller, Partner, Deloitte Consulting

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Shared services and outsourcing is supporting a wide range of business objectives from the quick wins to the game changers Claudio Altini, Director, Sourcing Advisory, KPMG

2. Different approaches to finance transformation are evident.

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3. Transformation ambition and sourcing strategy are linked.

We see an entirely new hybrid organisation emerging with innovation and end to end integration Austen McDonach, F&A Leader, Europe, IBM Global Process Services

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Going in clients think they are saving cost but losing control. They get the cost advantage, but then start to realise that quality is rising Chris Stancombe, Global Head of Finance and Accounting Outsourcing, CapGemini

4. Cost remains the starting point.

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5. Leaders differentiate between provider capability.

The main reason we selected our provider was the flexibility and ability to create business solutions to suit our organisation Joanna Reynolds, Global Shared Service Lead, Marsh and Mclennan

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The hardest part is the change management. People dont know what they dont know. And its never easy to take people on this journey Graham Russell, Director of BPO, WPP Group

6. Transformation success rests on change management.

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7. Retained function is critical, but it has been missed.

Its difficult to conceive you can get a F&A operation to the right level of efficiency and effectiveness without consideration for the retained function Anoop Sagoo, Senior Executive, BPO, Accenture

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For Pearson, cultural fit and tough love were buying values in our partner selection John Ashworth, Head of Finance Transformation, Pearson

8. Buyer provider relationships are misaligned.

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9. Service and service delivery.

Green SLAs across the board do not necessarily mean you are a happy customer Pascal Henssen, Senior VP and CEO Europe, Genpact

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Finance Transformation:
Focus on Value Assurance

Dealing with misalignment of client and service provider relationships

Curriculum vitae Claudio Altini ACA, CA(SA)

Position

Head of the Business Process Sourcing practice, KPMG in the UK

Experience Claudio is an acknowledged expert in finance and HR functional transformation, with broad experience in support function reorganisation and re-engineering assignments, in both panEuropean shared service centre projects and business process outsourcing projects. Claudio advises diverse industries including media, telecoms, automotive, IT, manufacturing, chemical distribution, pharmaceuticals, FMCG, leisure and central government. Contact details claudio.altini@kpmg.co.uk +44 020 7311 8873

2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved

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Outsourcing Relationships evolve

Common Questions In long term deals there is often a disconnect between expectation and delivery....
To what extent is the spirit of the deal being delivered? To what extent has the business case been achieved? Is the Client-Service Provider relationship/service right for tomorrow? To what extent are contractual obligations being met by both parties? How well are services performing against business expectation? To what extent are processes appropriate and evolving to meet contractual needs? What mechanisms enable the contract to grow/ adapt with both the Client and Service Provider? How is the service perceived at the executive and operational levels?

IRRELEVANT Agreed services not delivered and not expected

Services agreed In contract and expected but not delivered Services agreed In contract and delivered but not expected

CONFLICT Expectations not in line with delivered services nor with agreed services

Services expected and delivered but not agreed In contract

WASTE Services delivered but not expected and not agreed

Long term contracts need mechanisms to evolve as the relationship develops

To what extent are the capabilities able to support the contract?

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2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved

Value Leakage is common

Potential loss of outsourcing value from ineffective service provider governance

Efforts Duplicated

Resources Wasted

Problems Not Managed

Performance Not at Expected Levels

10-20% Value Loss Operational Challenges 20-30% Value Loss Performance Challenges

Vendors Deployed Against Conflicting Or Wrong Goal

Opportunities Untapped

5-10% Value Loss Portfolio Management Challenges

Total Potential Value Gained From the Outsourcing Relationship

'Net' Value Gained From the Outsourcing Relationship

2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved

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A Route to Optimising the Outsourcing Relationship....Value Assurance

A framework for the holistic review of contracts, service performance, expectations and level of partnership in outsourcing arrangements

Differentiation Domains..
...transform an outsourcing relationship to a real partnership..... generally support constant improvement

Foundation Domains
... must be in place for basic expectations of outsourcing relationship to be met ...... the modus operandi of the contract

2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved

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Value Assurance Insights from Recent Engagements

Performance
Excessive number of performance metrics
- Administrative burden - Barrier to global process

Opportunities to optimise performance metrics

- Metrics often not end to end, output

Challenges with the credibility of performance metrics.

- Insufficient pre-contract base-lining. - Frustration that SLAs do not reflect

standardisation

focused or aligned to business objectives

reality

Process
Drive towards Global Process Standardisation
- Key to achieving next level of benefits - Global Process Ownership

Need for Collaborative Approach

- Providers struggling to independently

Completeness of scope and scale increase chances of success.

- Hand offs and process breaks limit

optimise processes

end to end optimisation.

Price & Commercials

Source of next wave of savings unclear Desire to drive fixed to variable costs - Client desire for increased flexibility - Productivity commitments often do not and reduced volume commitments reflect reality - Transaction pricing constrained by - Capital investment continue to be a process standardization challenge Opportunities for greater alignment of incentives
- e.g. outcomes based gain share

2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved

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Value Assurance Insights from Recent Engagements

Plan & Potential
Performance against objectives
- Business case cost reduction

objectives typically achieved

- Process standardisation objectives

more challenging

Forward Planning - Overarching strategy and vision for BPO relationships often not clearly defined or communicated.

Challenges in delivering Innovation - Turning contractual obligations into tangible improvements

People & Governance

Challenges with clients ability to adopt and implement change globally
- Next level of savings and benefits

require significant change

Alignment of local and global objectives key to success of a BPO relationship - Service providers often struggle with mixed messages

Global Business Services - Centralization and integration of support services to drive value and deliver business strategy

Perception
Opportunities to better communicate successes
- Negative perceptions often amplified further

Change management is key to the success of a BPO relationship.

- Negative perceptions often linked to a need

away from the operation.

for improved change and stakeholder management

2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved

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Nine Factors to Successful Relationship Governance

It is never too late to establish a leading practice outsourcing governance team; a lack of governance erodes the deal value by as much as 15 to 20 percent. Realise that effective operating managers usually dont make effective governance executives. Shadow organisations likely exist in your organisation creating redundancies and increasing costs. Root out these teams and right-size your organisation. Outsourcing governance teams should ebb and flow as needs change throughout the transition and ongoing, or steady-state, phase. Make sure your teams flex and contract accordingly. Learn how to track the value of your outsourcing relationship. Focus on the what and not the how. Make sure your enterprise business intelligence and knowledge management initiatives include all the data and information related to outsourced processes, and that its tracked throughout the lifecycle of the relationship. Track and measure internal client satisfaction. Keeping an open dialogue and obtaining regular feedback from internal clients is key to managing expectations. Ensure you and your provider have aligned goals, or risk failure to deliver on the intent of the deal.

Determine your organisations level of trust toward its provider. Do whatever is necessary to maintain or regain trust to avoid diminishing value.
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2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved

Thank you!

claudio.altini@kpmg.co.uk +44 (0)20 7311 8873

KPMG Advisory Services

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).

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